Jet Airways Final

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MERGERS AND ACQUISITIONS CASE STUDY ON JET AIRWAYS ATTEMPTED ACQUISITION OF AIR SAHARA

Guided By Prof. Neha Chauhan

INTRODUCTIONACQUISITION ABOUT THE ACQUISITION DEAL > RESPONSE > COMPETITORS >ANALYSTS > CHAIRMAN OF JA ULTIMATE FAILURE.

THE INDIAN AVIATION INDUSTRY

IN THE EARLY 1990S IMPLEMENTATION OF THE OPEN SKIES POLICY BY THE GOVERNMENT OF INDIA AFTER THE LIBERALIZED NUMBER OF PRIVATE CARRIES ENTERED SUCH AS EAST WEST AIRLINES (EWA), MODILUFT, DAMANIA AIRWAYS (DA), NEPC, AIR SAHARA(AS) AND JET AIRWAYS (JA) BY THE END OF THE 1990S ONLY TWO PRIVATE CARRIERS AS AND JA REMAINED IN THE INDUSTRY. AND THESE TWO AIRLINES PROVIDED COMPETITION TO INDIAN AIRLINE (IA) THROUGHOUT THE 1990 JET AIRWAYS BECOME MORE POPULAR BECAUSE OF THEIR ON TIME PERFORMANCE AND EFFICIENT SERVICES IN EARLY 2000S IT HAD REPLACED INDIAN AIRLINE (IA) AS THE LEADER IN THE AIRLINE INDUSTRY

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IN 2003-04 IA, JA, AND AS WERE FACING MORE COMPETITION TO AIR DECCAN FOR LOW COST CARRIERS(LCC) IN 2005, THREE MORE LCCS NAMELY, SPICE JET, GO AIR, AND PARAMOUNT AIR AND KINGFISHER AIRLINES INDIGO, VISA AIR, AND OTHER WERE GETTING READY TO TAKE OFF IN 2006. THE LCC WERE POPULAR DUE TO THE LOW FARE AND GAINING MARKET SHARE FROM THE FULL SERVICE AIRLINE COMPANIES. IN 2006 THE MARKET SHARE OF LCC STOOD AT 27% CENTRE FOR ASIA PACIFIC AVIATION (CAPA) WAS EXPECTED TO INCREASE AS 50% BY 2010 THUS THE FULL SERVICES AIRLINE IN INDIA WERE FACED WITH THE DIFFICULT TASK OF FINDING NEW WAYS TO RETAIN THEIR POSITION IN THE INDUSTRY

JET AIRWAYS

INTRODUCTION JA HAD AGREEMENT WITH 123 FOREIGN CARRIES JA INCURRED LOSSES OPENED UP THE AVIATION SECTOR BY ALLOWING PVT. PLAYERS JA WENT FOR AN IPO CO. MARKET SHARE HAS DROPPED JA LOST A NUMBER OF ITS PILOTS.

AIR SAHARA INTRODUCTION SAHARA INDIA AIRLINES LTD.(SAHARA AIRLINES) ESTABLISHED IN SEP 1991 BY SAHARA INDIA PARIWAR. SAHARA AIRLINES BEGAN OPERATIONS 1993WITH 2 BOEING 737-200S.

WAS

ON DECEMBER 3,

BY THE END OF THE 1990S, SAHARA AIRLINES HAD ESTABLISHED ITSELF ONE OF THE LEADING PLAYERS IN THE INDIAN AIRLINE INDUSTRY. SAHARA AIRLINES ALSO WON SEVERAL AWARDS FOR ITS INFLIGHT SERVICES. IN 2000, SAHARA AIRLINES RE-BRANDED ITSELF AS |AIR SAHARA}

AS GROWTH PLAN

IN 2002 AIR SAHARA INVESTED OVER $40 MILLION ON EXPANDING ITS FLEET AND THE REACH OPERATIONS. THE COMPANY TAPPING NEW SEGMENTS SUCH AS PLIGRIMAGE AND TOURISM TRAFFIC AND BEGAN OPERATING FLIGHTS TO PLACES OF PILGRIMAGE AND TOURIST SPOTS. DURING 2002, AIR SAHARA RS. 1 BILLION ON THE SPONSORSHIP OF THE INDIAN CRICKET TEAM FOR A PERIOD OF THREE YEARS. AIR SAHARA ALSO INITIATED ADVERTISING AND MARKETING COMPAIGN INCLUDED A VARIETY OF INCENTIVES TO ITS PASSENGERS. IN 2003, AS EXPANDED ITS FLEET BY LEASING NEW AIRCRAFT SUCH AS BOEING 737-700S, AND SMALLER CANADAIR REGIONAL JETS FROM BOMBARDIER. THE CO. ALSO INTRODUCED NEW PROMOTIONS AND SCHEMES SUCH AS ~SIXER AND ~SUPER SIXER DISCOUNT FARES. IN 2003, AS ALSO ENTERED INTO TIE-UPS WITH ICICI BANK AND STANDARD CHARTERED BANK WHEREBY PASSENGERS COULD PAY FOR THEIR TICKETS IN TWELVE MONTHLY INSTALLMENTS AT 0% INTEREST. THIS ALL HELPS TO AS MARKET SHARE HAD INCREASED TO 13% FROM AROUND 5-6 PERCENT IN 2000.

ACHIEVEMENTS IN 2004 WHEN AS FLEW TO COLOMBO, IT BECAME THE FIRST DOMESTIC PRIVATE CARRIER TO OPERATES FLIGHTS TO AN INTERNATIONAL DESTINATIONS. IN 2004, AS FLEW TO DOMESTIC DESTINATIONS AND ONE INTERNATIONAL ONE.

SET BACKS ANALYSIS WERE NOT CLEAR ABOUT THE POSITIONING OF AS EVEN AFTER 10 YEARS OF ITS EXISTENCE. ACCORDING TO THEM THE AIRLINES COULD NEITHER ESTABLISH ITSELF AS A PREMIUM AIRLINE NOR COULD IT BE CALLED AN LCC.

FURTHER PLANS

IN 2005 AS ANNOUNCED THAT IT WAS PLANNING TO PURCHASE AIRCRAFT FOR THE FIRST TIME. IN ADDITION THE CO. WOULD ALSO LEASE BRAND NEW BOEING AIRCRAFT. IN2005 AS ANNOUNCED THAT HYDERABAD WOULD BE FIRST HUB FOR FLIGHTS TO DOMESTIC AND INTERNATIONAL DESTINATIONS. BANGKOK, KUALA LUMPUR AND SINGAPORE IN MARCH 2005 AS WENT IN FOR A NEW LOOK AND ADOPTED THE COLORS THE INDIAN FLAG. IN LATE 2005 AS ENTERED INTO A CODE SHARING AGREEMENT WITH AMERICAN AIRLINES, A US BASED AIRLINES. BY LATE 2005 AS HAD 27 AIRCRAFT THAT CARRIED 3.5 MILLIONS PASSENGERS TO 24 DOMESTIC AND INTERNATIONAL DESTINATIONS EVERY YEAR.

INDIAN AIRLINES ON 28MAY1953,THE GOI ENACTED THE AIR CORPORATIONS ACT, AND ESTABLISHED TWO COMPANIES NAMELY, IAC AND AII. IAC WAS RENAMED INDIAN AIRLINES LTD.IN 1994. IA BEGAN FACING STIFF COMPETITION FROM THE PRIVATE CARRIERS AFTER LIBERALIZATION OF THE AIRLINE INDUSTRY IN THE EARLY 1990S. IN 2000S IA WAS AFFECTED BY THE TERRORIST ON THE WTC IN THE US.

IN 2002-05 ,IA WAS FORCE TO UNDERTAKE A VARIETY OF SHORT-TERM AND LONG-TERM MEASURES TO IMPROVE ITS FINANCIAL SITUATION AS WELL AS ITS POSITION IN THE INDUSTRY. RESULTS OF THIS MEASURES IA EARNED PROFIT OF RS. 6.561 BILLION FOR FY 2004-05. IN 2006, IA TOGETHER WITH ALLIANCE AIR HAD A FLEET OF 62 AIRCRAFT.(EST. 1996) IN 2006, IA FLEW TO 58 DOMESTIC AND 19 INTERNATIONAL DESTINATION.

THE PROPOSED DEAL AS ANNOUNCED THAT IT WAS EXPLORING OPPORTUNITIES FOR PRIVATE PLACEMENT OF ITS EQUITY, AIRLINE COMPANIES SUCH AS SPICE JET SHOWED AN INTEREST IN ACQUIRING A STAKE IN THE COMPANY. AT THIS TIME, JA DID NOT EXPRESS ANY INTEREST IN ACQUIRING A STAKE IN AS. INSTEAD , KINGFISHER AIRLINES, AN AIRLINE OWNED BY VIJAY MALLYA,WAS CONSIDERED A SERIOUS CONTENDER FOR AS. SAID MALLYA ,}I VALUED SAHARA LESS AS I CANT PAY FOR PARKING SLOTS THAT BELONG TO THE STATE.}

EVEN AS THE KINGFISHER-AIR SAHARA DEAL FAILED TO MATERIALIZE, THERE WERE REPORTS THAT JA HAD STARTED NEGOTIATING WITH AS TO ACQUIRE THE ENTIRE SHAREHOLDING IN THE COMPANY. IN JAN 2006 ,JA FINALLY ANNOUNCED THAT IT HAD ENTERED INTO TALKS WITH AS FOR ~STRATEGIC ALLIANCE. ON19 JAN2006 ,JA ANNOUNCED THAT IT HAD AGREED TO PAY $500 MILLION IN CASH TO ACQUIRE A 100% STAKE IN AS.

BENEFITS FOR JET AIRWAYS MARKET SHARE ( JA 35% & AS 11% ) COMPANY GROWTH ( AS HAD 27 AIRCRAFT AND OPERATED 136 FLIGHTS/PD, WHEREAS JA OWNED 53 & OPERATED 290 FLIGHTS/PD) PARKING BAYS ( 26/49 IN MUMBAI & 23/46 IN DELHI ) INTERNATIONAL DESTINATION ( AS - LONDON, SINGAPORE, CHICAGO, KATHMANDU, COLOMBO JA UK, US, THAILAND, SINGAPORE, MALAYSIA ETC. ) ECONOMIES OF SCALE

THE CHALLENGES1.

JA NEEDS TO WORK HARD TO SUSTAIN THIS POSITION IN THE LONG RUN IA AND AI WERE TAKING STEPS TO IMPROVE THEIR OPERATIONS. A. IA HAD BECOME PROFITABLE IN 2004 B. IA AND AI WERE ALSO EXPECTED TO GO FOR IPO C. MR. PRAFFUL PATEL ALSO ANNOUNCED THAT IA AND AI WOULD BE MERGED JA HAD BEEN OVERVALUED AS BECAUSE OF A. AS WAS NOT PROFITABLE AIRLINE B. AS WAS NOT KNOWN FOR ITS SERVICE QUALITY

2.

3.

>>4.

CERTAIN ROUTES OF JA AND AS WERE OVERLAPPING AND HENCE JA MAY NOT ABLE TO FULLY UTILIZE THE 11 PERCENT MARKET SHARE OF AS ASS FLEET WAS COMPARATIVELY OLDER THAN JAS FLEET. ALL AIRCRAFT OF AS WERE LEASED AND SOME LEASES WERE DUE TO EXPIRE IN 2007. JA AND AS HAD TWO DIFFERENT WORK CULTURES.

5. 6.

7.

MONOPOLY CONCERN MARKET LEADER IN AIRLINE INDUSTRY. APPOSITION FROM AIRLINES LIKE KINGFISHER AIRLINES, AIR DECCAN ETC & FORMATION OF ALLIANCE CALLED IAOA. ACQUISITION OF PARKING SLOTS. APPROVAL FROM GOI FOR TRANSFER OF OWNERSHIP. REVERSAL OF PRICES .

THE DEAL FALLS THROUGH